The Marine Insurance Markets in 2003
2003 a better year for marine insurance
2004 a critical year
Hull and machinery
A sector still fragile
The Cargo market
The P&I Clubs
2004: a critical year
Luckily only a few major marine
disasters occurred in 2003. Some companies have voluntarily
or not left the marine insurance market but the underwriting
capacity has been maintained. Movements in rates varied
according to the different specific sectors of the marine
market. On the other hand, risk exposure increased
especially in value.
Hull and machinery: rate hikes continued
In our report on the marine
insurance for the year 2002, we mentioned that the market
had firmed up, namely there was a follow-up of rate
increases and a more selective assessment of risks. This
trend continued during the first half of 2003, but the
premium increases were far more moderate in the second half
and at the beginning of 2004.
Fleets which showed good technical
performances at the beginning of 2003 met with increases of
about 10 % on their hull and machinery policies, but
sometimes as much as 25 to 50 % for some whose results
showed a loss ratio in excess of 100 %, or alternatively for
fleets which were terminating a long term contract and for
which rates had been contractually limited during the
firming up of the market since 2000.
To the surprise of most marine
insurance players, the revisions applied during the second
half of 2003 were much more restrained, with the �good�
clients often obtaining less than 5 % increases, and
underperforming ones being renewed at about 25 % over last
Overall the performance of marine
insurers improved thanks to the rise in rates, cost cutting,
re-insurance costs remaining relatively stable, a stricter
underwriting policy and an absence of major disasters as
experienced in the last quarter of 2002. In the
international market, the number of companies and
underwriters is far fewer than 10 years ago. The capacity is
divided out differently between companies with some
subscribing a higher proportion of the risks, whilst others
are far more sensitive and circumspect, which naturally
produces different underwriting results and policies amongst
Despite an improvement in profits
in 2003, the losses on the previous exercises did not allow
some players to take full advantage of the improvement in
premium rates and claims-record of the current exercise. The
higher rates have not compensated the chronic under-charging
of the last 6 years and many insurers have doubtless
under-estimated the necessary reserves for covering the
commitments taken during the previous years.
These elements have without any
doubt weakened the impact of the higher rates on results.
A sector still fragile
The weak recovery of the financial
markets since December 2002 has affected the level of
endowments for provisions against fundamental depreciation,
with repercussions on the balance sheet and net profits of
2003 the rating agencies gave a fairly general marking down
on the financial standing of insurance companies.
The reasons for these
re-evaluations were not exclusively found in the marine
sector, but also in the other segments of the insurance
Standard & Poor�s lowered the
rating of 207 insurers and re-insurers in the course of
2003, namely 28 % more than in the previous exercise. This
trend is symptomatic of the extent of the declining
confidence in the solvency, which is affecting the majority
of actors now since eighteen months.
need for technical returns is a criterion for the whole
profession, as it is now no longer possible to fall back on
the financial profits to subsidise as a general rule the
technical deficits - which is a practice carried out in most
European markets during the second half of the 90�s.
In practice, it should be realised
that it is as much the impressive increase in freight rates
(mainly in bulk and oil seaborne trade) as the important
depreciation of the dollar in relation to the euro, which
has led to a significant increase in the insured value of
ships (mostly insured in dollars). Capital which is
necessary to insure these ships is therefore considerably
higher, but only results in very small increases in the
insurance premiums. The effect of any total losses would
therefore have a bigger negative impact on marine insurers.
Europe: a market leader and in competition
with the developing markets
Marine insurance has remained an
�euro-centric� industry as 60 % of world business is
underwritten in Europe, 22 % in Asia, 14 % in North America,
and 4 % in the rest of the world.
France (1) is number two
world-wide in hulls underwriting and acts as an alternative
and competitor to the London and Norwegian markets, who hold
the predominant positions as leaders in the coverage of the
largest international owner�s fleets. The French marine
insurance market is dominated by AXA Corporate Solutions and
AMA (Allianz Marine & Aviation), with Groupama Transport
completing the trio.
Japan is in
second place world-wide in terms of marine premium income,
but it does not play a predominant role in the global scene,
as the Japanese insurance companies are above all
concentrated on the national shipyards and owners.
Nonetheless they have recently shown a growing interest in
the European fleet.
Korea (Samsung Fire & Marine, Korean Re), like Japan, has
introduced a change in policy in 2003 in proposing terms,
which are often very competitive to certain European owners,
A close watch should be kept over
the viability of Asian companies in their expansionist
drive, bearing in mind their last attempts at international
underwriting in the 80�s ended up in failure.
market is customarily more local than Hull, with insurers
throughout the world offering coverage to domestic clients
either as a stand-alone Marine product or as an additional
service line of business to industrial clients.
In the current market,
transparency is a key element, with full information being
requested by insurers - often with little tolerance for
inadequate answers - and increased premiums and / or
deductibles for underperformance.
Despite intense competition in
this segment of marine insurance, most insurers have made
substantial profit in 2003 and are still fighting for market
share. Such attitude will sooner than later generate premium
reductions and / or losses for insurers.
There is a popular view that
war-risks insurance is a licence to print money. There have
been relatively few high-profile marine losses apart from
the �Limburg� but premiums have risen quite a bit since the
11 September attacks.
The nature of
war-risks cover, however, makes it much harder to take a
view on the fundamental profitability of this class of
business. There are not so many traditional wars but more
undeclared conflicts and at least the perception of a much
higher terrorist threat.
Although there are a run of
regular losses from conflicts around the world and the
occasional encounter between a ship and mines from either
the second world war, the long running conflict in Sri Lanka
or in other trouble spots.
The biggest recent marine
war-risks loss was not the terrorist attack that rendered
the tanker �Limburg� a constructive total loss, but a $125m
claim arising from attacks on dredgers working in Indonesian
Carnival's latest cruiseship, the
2,620-passenger �Queen Mary 2�, will have war-risks cover
equivalent to the $800m value of the hull. It will also have
additional protection-and-indemnity war-risk cover of $400m
The Lloyd's underwriters who lead
the P&I clubs war-risk programme are the same as those who
write hull war risks so the aggregate risk on this single
ship runs to $1.2bn, a figure that challenges the capacity
of the war market.
Marine war risks underwriters also
write aviation and energy war risks so there is a single
market in this class of business. A successful terrorist
attack on such a ship would wipe out the total war-market's
premium income for many years.
War-risks cover has traditionally
been limited to mobile property such as ships, aircraft and
jack-up rigs that can flee a trouble-spot if necessary but
there is now a limited market for cover for fixed objects
such as offshore platforms and port installations.
North Sea platforms generally have
terrorist but not war cover, although some oil-and-gas
installations in the
Middle East have war
London war underwriters are planning to develop a new wording to match the
recently introduced revision to the International Hull
The idea is to match the wordings
so that risks excluded by the latter are given back in the
same terms to avoid potential gaps and disputes. Revising
the war clauses is, however, seen as a much simpler task
than for the hull clauses.
London also has a War Risks Rating Committee that publishes a tariff of minimum
rates for both marine and aviation. However, these rates
apply to cargo rather than ship or aircraft hulls.
It should be noted that the French
Marine Insurance market has pooled a significant
underwriting capacity through the G.A.R.E.X. which is able
to offer alternative coverage to the
The P&I Clubs (Protection & Indemnity)
Since 1994/1995, members of the
International Group of P&I Club have not seen a surplus.
Nine of the 13 Clubs of the International Group announced a
double-digit increase in rates in order to consolidate their
reserves and to be able to face the growing trend towards
catastrophes in the future.
The Clubs are extremely conscious
about the effect of a catastrophic disaster occurring to a
large cruise ship or tanker, which would place their
capacity (and that of their re-insurers) under pressure.
There is a potential risk of conflict between the demand for
capacity and the available supply on the insurance and
The Athens Convention on passenger
indemnity in the case of disaster is a serious cause of
concern for the Clubs. Cruise ships only account for 1% of
the world tonnage (dwt) but the owners and managers of the
Clubs are preoccupied by the cost of claims which would
result from a new �Titanic� which would sink the capacity of
clubs to underwrite all the other owners.
These fears are reinforced with
the coming into force of the Athens Convention protocol,
which has increased the level of indemnity to 400 000 SDR
($ 570 000) per passenger. The whole market from now on
living under the threat of a $ 1.75 billion disaster, if the
largest cruiseship was lost with all the passengers on
2004: a critical year
l�int�r�t des armateurs, les assureurs doivent prouver
qu�ils ont tir� les le�ons du pass� et analys� les raisons
des pertes qui ont affect� lourdement leur industrie (6
milliards $ de pertes en 6 ans). La performance des
compagnies et des P&I Clubs d�pend d�sormais de leur
aptitude � poursuivre plus avant une politique attentive de
tarification et simultan�ment de s�lection accrue des
risques, tout en consolidant leurs parts de march�.
Contrairement � l�ann�e 2003 durant laquelle peu
d��v�nements majeurs se sont produits, l�ann�e 2004 semble
d�buter plus difficilement avec notamment les sinistres
ayant affect� le vraquier �Rocknes� (18 morts) en Norv�ge et
le navire de croisi�re en construction en Allemagne �Pride
of America�, d�une valeur de 380 millions $.
pr�servation de la ressource et des r�serves des assureurs
maritimes constituera un facteur d�terminant dans leur
capacit� � faire face aux �v�nements majeurs et � r�pondre �
- tant les armateurs que les industriels - ont besoin d�un
march� stable et suffisamment profitable, faute de quoi
l�assurance maritime ne sera plus en mesure d�attirer les
capitaux n�cessaires, et les hausses excessives de primes
constat�es au milieu des ann�es 90 risqueraient de se
reproduire, � un moment o� les marges de nos clients
pourraient � nouveau se r�duire !
For the sake of
owners, insurers must show that they have learnt the lessons
of the past and analysed the reasons for the losses, which
have badly hit the industry. From now on the success of
companies and P&I Clubs depends on their ability to take a
keener interest in the setting of premiums and at the same
time a more attentive selection to risks, while struggling
for their market share.
Unlike 2003, when very few major
events troubled the picture, the year 2004 seems to have
started with bigger problems, as we have already had claims
affecting the bulk carrier �Rocknes� (18 killed) in Norway
and the cruise ship under construction in Germany, the
�Pride of America�, with a value of $380 million.
Being able to maintain their
funding and reserves will be a critical factor for marine
insurers in determining their capacity to handle major
disasters and to respond to the market evolution.
Those insured - as much owners as
industry - need to have a stable and sufficiently profitable
market, without which marine insurance will not be able to
attract the necessary capital, and the excessive increases
in premiums which were seen in the 1990�s, risks happening
again, at a time when clients� profits could again get
Cap-Marine undertakes to find the best solutions
for its clients within the international market.
Shipping and Shipbuilding Markets in 2003
I N D E X
- Via Raffaele Paolucci 17r/19r - 16129 Genoa - ITALY
phone: +39.010.2462122, fax: +39.010.2516768, e-mail